Why Few Investors Profit From Stocks: A Handful of Winners and a Handful of Days
Owning good companies matters, but so does staying invested while they grow. The data suggest the obstacle is rarely information. It is the lack of a structure built in advance to hold up when markets shake.
Many investors know the power of long-term investing. Few manage to do it. The reason is simple: the human brain reacts faster to money that vanished from an account today than to compounding decades away.
1. A tiny share of companies lifts the market, not most of them
Hendrik Bessembinder of Arizona State University analyzed about 25,300 US-listed common stocks from 1926 to 2016. Only 42.6% of individual stocks earned a lifetime holding return above that of one-month Treasury bills.
The finding on who created the wealth was starker. Measured by excess net wealth creation, the top 4% or so of companies accounted for the entire net gain of the US stock market. About 90 companies produced more than half of all wealth creation. This is the positive skew in long-term equity returns: a small number of overwhelming winners offsets the many laggards.
Betting on a few stocks and swapping them often therefore carries two overlapping risks. One is never picking the big winners. The other is picking one and selling too early. A broadly diversified index ETF is one way to hold those few winners inside a portfolio.
2. Ten days out of 20 years made a huge gap
Consider JP Morgan's study of the S&P 500 total return index from July 2004 to July 2024. Fully invested on every trading day, an investor earned an annualized 10.5%. Missing the 10 best days cut that to 6.2%. Missing the 20 best days cut it to 3.6%, and missing the 30 best days cut it to 1.4%.
| 20-year scenario | Annualized return | Value of $10,000 after about 20 years* |
|---|---|---|
| Stay invested | 10.5% | About $73,600 |
| Miss the 10 best days | 6.2% | About $33,300 |
| Miss the 20 best days | 3.6% | About $20,300 |
| Miss the 30 best days | 1.4% | About $13,200 |
*Illustrative approximation from JP Morgan's annualized returns compounded over 20 years. Differences from the original data's ending values and rounding are possible. Assumes dividends reinvested; excludes taxes and fees.
A caveat applies. This is an after-the-fact simulation that removes only the best days. It does not measure the benefit of avoiding the worst days, or the results of any real cash-management strategy. What the study shows is not that market timing is impossible, but how much a few sharp rally days can shape the outcome. Rebounds often arrive without warning right after a crash, so getting both the exit and the re-entry right is hard.
3. The problem is behavior, not information
Real investors tend to sell when fear rises and return when they feel safe. Picking a good company and actually capturing its returns become two very different things.
In DALBAR's 2024 study, the average equity fund investor returned 16.54%. The S&P 500 returned 25.02% that year. The gap was 8.48 percentage points. That points to trade timing and cash flows having a large effect on what investors actually earn. Still, the two groups hold different assets and have different makeups, so the whole gap cannot be pinned on emotional trading.
4. What is needed is not heroic patience
Explaining failure at long-term investing by willpower alone does not solve the problem. If living expenses are in stocks, leverage is excessive, or assets are heavily concentrated in one name, holding for the long run is not a strategy. It is an impossible mission.
By contrast, an investor who sets aside living expenses and an emergency fund, diversifies to match the time horizon, and decides in advance how much risk is tolerable has room to re-examine the investment thesis during a correction. That investor neither sells just because the price fell nor holds forever just because the company was once great.
One sentence for investors: The best investment strategy is not the skill of making the right call every day. It is a structure built in advance so that you do not collapse in the moments when mistakes are easiest.
Insight Times Editorial Desk
